Unit 3

Question 1

3 primary financial statements

Answer 1

balance sheet
income statement
statement of cash flows

Question 2

Balance Sheet

Answer 2

aka Statement of Financial Position
Assets, Liabilities, Equity
Can company pay short term liabilities (liquidity position)
Will debt structure allow long term survival (solvency)

Question 3

Income Statement

Answer 3

aka Statement of Earnings
Annual and Quarterly Net Income
Measures performance

Question 4

Statement of Cash Flows

Answer 4

Reports cash collected and paid in operations, investing, financing.
Annual and Quarterly reports
Measures change in cash during a time period

Question 5

Statement of Retained Earnings

Answer 5

shows accumulated profits and losses since inception

links Income Statement and Balance Sheet

Question 6

Form 10-K, 10-Q

Answer 6

SEC required form that contains all 3 major financial statements
Q - quarterly
K - annual, within 60 of end of fiscal year

Question 7

EDGAR

Answer 7

resource used to access public Form 10-K filings

Question 8

CIK

Answer 8

Central Index Key

uniquely identifies companies in the SEC online database

Question 9

Types of assets

Answer 9

Cash
AR
Inventory
Buildings

Question 10

Types of Liabilities

Answer 10

AP
Taxes Payable
Mortgage Payable
Unearned Revenue

Question 11

Types of Owners Equity

Answer 11

Capital Stock
Retained Earnings
aka Shareholders Equity

Question 12

Creditors claims against Assets

Answer 12

Liabilities

Question 13

Owners claims against Assets

Answer 13

Owners Equity

Question 14

Factors that increase/decrease owners equity

Answer 14

Decrease - dividends, losses

Increase - additional investments, profit

Question 15

Classified Balance sheet

Answer 15

distinguishes between current(liquid) assets and long term (iliquid) assets.

Question 16

types of current vs long term assets

Answer 16

cash vs land

Question 17

types of current vs long term liabilities

Answer 17

AP vs mortgage

Question 18

comparative financial statements

Answer 18

compare current year to previous year

Question 19

limitations of balance sheet

Answer 19

discrepancy between balance sheet value and market value
balance sheet records purchase cost, market value uses current cost
not all assets are in balance sheet ie name recognition, distribution channels, reputation

Question 20

Shows results of operations for a period of time

Answer 20

Income Statement

Question 21

What does income statement summarize?

Answer 21

Revenues, costs to generate revenue (expenses)

Bottom line is net income/loss (revenues - expenses)

Question 22

What does income statement assess?

Answer 22

Company’s profitability.

Question 23

Revenue definition

Answer 23

Assets created through sales.

Question 24

Expenses definition

Answer 24

Assets consumed through operations to generate revenues.

Question 25

Net Income/Loss definition

Answer 25

aka earnings/profit revenues - expenses R>E = net income R

Question 26

Difference between revenue and net income

Answer 26

revenue is gross | net income is net after expenses

Question 27

Gross Profit(Margin) formula, meaning

Answer 27

Sales - Cost of Goods Sold | higher GM means higher stock market price multiples

Question 28

Operating Income

Answer 28

Gross Profit - Operating Expenses

Question 29

Net Income formula

Answer 29

Operating Income - interest and tax expenses

Question 30

Non operating expenses

Answer 30

Interest | Income tax

Question 31

EPS equation, meaning

Answer 31

Earnings(Loss) per Share | Net Income/Number of Stock Shares

Question 32

gain/loss

Answer 32

Money made/loss outside normal business activities

Question 33

retained earnings formula

Answer 33

old RE + Net Income-Dividends

Question 34

Statement of Cash Flows description

Answer 34

shows operating, investing, and financing cash inflows/outflows over a time period

Question 35

retained earnings description

Answer 35

shows accumulated earnings at a point in time

Question 36

examples of cash inflows

Answer 36

selling goods or providing services selling assets borrowing receiving cash

Question 37

examples of cash outflows

Answer 37

pay operating expenses purchase assets repay loans pay returns on investments to owners

Question 38

3 categories of cash flows

Answer 38

Operations (in - sell, out - pay wages, taxes, etc.) Investments - in - sell assets, out buy assets Financing - in - borrow, out repay; distributions

Question 39

Articulation

Answer 39

relationship between operating statements and balance sheets Statement of cash flows feeds to cash assets in Balance Sheet Income statement feeds RE sheet, feeds RE statement in Balance Sheet

Question 40

Four categories of Notes to Financial Statements

Answer 40

Summary of significant accounting policie Additional information about summary totals in financial statements - detailed data feeding a summary Disclosure of important information not added to financial statements - recognition Supplementary information required by FASB or SEC

Question 41

Recognition

Answer 41

include estimates/judgements in financial statements

Question 42

Disclosure

Answer 42

include estimates/judgements in notes

Question 43

financial statement analysis

Answer 43

examining relationships among financial statements and trends within

Question 44

common size financial statements

Answer 44

using percentages of sales/revenues/assets to compare financial data between companies - divide all income statement numbers for a given year by sales (or revenues) for the year.

Question 45

Horizontal analysis

Answer 45

comparing results from year to year, using absolute values or percentages

Question 46

Vertical analysis

Answer 46

comparison to other companies in the same industry at the same point in time divide all numbers by biggest number, typically revenue for